DMGT suffers further software headaches

By Henry Mance. This article originally appeared on the Financial Times website, on September 17th, 2014

Daily Mail and General Trust will write down a “material part” of the value of its risk management software after announcing further launch delays to a flagship product. 

RMS(one) was due to go on sale in early 2014, but has been pushed back successively. 
A simpler version of the software was now expected to be available in late 2015, DMGT said in a trading statement on Wednesday. 

The delays have triggered £5m in additional costs, meaning that RMS’s “adjusted operating profit for the current financial year is expected to be at the bottom end of market expectations” of £45m-£50m, the company said. 

“We learnt a lot. Software development is not without its challenges,” said Stephen Daintith, finance director, although he added that RMS’s eventual functionality, including its ability to integrate with third-party products used by the insurance industry, would not be affected.

Shares in DMGT were down 8 per cent at 749.5p in early London trading. Investec analysts said that RMS(one) delays “look a ‘running sore’ on sentiment”.

The impairment to the asset’s value of about £85m will be taken in the current financial year, ending in September, with a further update on progress in early 2015.

House broker Numis said the problems would reduce its earnings per share forecasts for 2015, given “1) reduced capitalisation of future development costs; 2) committed increases in data centre costs”. 

However, analysts said the impact on DMGT's share price would be partly offset by the company’s announcement that it would buy back another £100m in equity. A previous scheme to purchase £100m in shares was completed on September 4, having taken 21 months. 

Overall, DMGT reported a 1 per cent year-on-year rise in revenues in the 11 months to August 2014, or 5 per cent on a like-for-like basis, adjusting currency fluctuations, disposals and other items. 

That was led by an 8 per cent rise in business-to-business division, particularly information and events. 

DMG Media, which includes the Daily Mail newspaper and MailOnline website, had flat like-for-like revenues, with a 5 per cent fall in circulation cancelled out by a 5 per cent rise in advertising sales. 

MailOnline’s advertising revenues increased 49 per cent year-on-year in the first 11 months of the year to £53m. Mr Daintith said it was on course to meet a full-year target of £60m. 

DMGT also highlighted the contribution of online discounts site Wowcher, which it said “delivered a particularly strong performance with revenue growth of 77 per cent and it now has a substantial database of 5.9m subscribers.” 

“The digital transformation remains robust at DMG Media,” wrote analysts at Jefferies. Given the share buyback and declining leverage, they added: “for us, perhaps the good outweighs the bad”.

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